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Investing.com -- Fair Isaac Corporation (NYSE:FICO) stock fell 6% today while Equifax (NYSE:EFX) shares rose 3% and TransUnion (NYSE:TRU) gained 4.4% following an announcement that Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) will now allow lenders to use the VantageScore 4.0 credit scoring model.
William Pulte, Director of US Federal Housing FHFA, announced the change on social media platform X, stating: "Effective today, to increase competition to the Credit Score Ecosystem and consistent with President Trump’s landslide mandate to lower costs, Fannie and Freddie will ALLOW lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure (stays Tri Merge)."
The decision appears to be negatively impacting Fair Isaac, the company behind the widely-used FICO credit score, as it potentially faces increased competition in the mortgage lending market. Meanwhile, the three major credit bureaus that jointly developed VantageScore - Equifax, Experian (OTC:EXPGF), and TransUnion - are seeing their stocks rise on the news.
VantageScore 4.0, released in 2017, employs machine learning and trended credit data to evaluate consumer creditworthiness. The model is particularly designed to assess borrowers with limited or "thin" credit files, potentially expanding the pool of mortgage-eligible consumers.
This policy change aligns with stated goals to increase competition in credit scoring and potentially reduce costs in the housing finance system, while maintaining the existing tri-merge credit reporting infrastructure.